Teaching Little Ones How to Handle Money

The following post is by contributor Christen Babb of Nurture Baby.

As the years change, so do our goals. In 2011, with the economy still on its way up, a common new year’s resolution is to budget better and spend wisely. We work hard to pinch every penny, but it’s just as important to impart our knowledge and experience (the good and the bad) onto the next generation.

As Dave Ramsey, a well known financial personality says, “Parents are not just responsible for providing food, clothing, and shelter for their kids. They are also responsible for teaching their kids about life—and life includes handling money.” If we don’t teach our children how to properly handle money, someone else – or some other crafty ad campaign – will.

A common way to to teach little ones the value of a dollar is to create a reward system based on a set of simple, kid-friendly responsibilities.

When to Start?

I believe it’s important for kids to start doing simple household chores before they receive a  reward – perhaps as early as 3 or 4 years old.  Tasks such as sorting and putting away silverware, feeding the pets, “folding”  the towels (don’t aim for perfection!) are fun, age-appropriate jobs for eager little helpers. It sets the tone that some jobs are not paid – they are simply responsibilities for being a part of the family. Kids who help around the home gain self-respect and take pride in a job well done. They learn early on that other rewards, such as allowance, are secondary benefits.

Allowance vs. Commission: What’s the Difference?

Once kids understand the concept of money and that some task are required just because, it’s a good time to introduce a simple compensation plan. Traditionally, parents use an allowance system, but setting your child up on a commission plan might be more effective.

Consider that allowance is a fixed amount of money given each week for a complete set of chores. There is not much room for flexibility or over-achievement.   Commission, on the other hand, teaches kids that rewards come from hard work. The harder you work, the greater the reward.

For example, once my four year completes her weekly family chores – like feeding the dog and cleaning her room, she has the opportunity to earn extra income for chores around the home. Commission for extra chores can range from 10¢ to $1. (For the over-achievers, it might be wise to set up a reasonable commission cap in advance!)

Photo by Pink Sherbet

Teach them how to handle money: Give, Save, Spend

Ah, it’s so much easier said than done, isn’t it? But teaching your little one this lesson early is so important. After all, it’s much less painful to make a dollar mistake as a child than it is a thousand dollar one as an adult.

  • Give. Whether in the form of a tithe to your church or a donation to a favorite charity, it’s so important to teach children to give first. Why? Because if it doesn’t happen first, it often doesn’t happen. Plus, it teaches children to think of others’ needs before their own – a valuable lesson that will serve them well in life.
  • Save. It’s time to bring back the art of delayed gratification in a world where credit has become a way of life.  No pun intended, help “save” your children the heartache of spending money they don’t have.
  • Spend. Not too hard a lesson to teach, but an equally important one – kids should reap the reward of their hard work! Wisely spending their earned money builds character, fosters self-confidence, and teaches responsibility.

When introducing children to allowance or a commission plan, be sure to impart  that hard work isn’t always about earning a dollar. Hard work through service can be much more rewarding than any amount of money earned.  Consider adding an extra service day to the chore calendar– even if it’s a simple task every few months. This will heighten your child’s awareness to others’ needs and she may even help you come up with a few service ideas. Your little one might not be able to scrape snow off a driveway, but she can certainly help you make a meal for a sick neighbor. It’s one more way to teach your child the value of hard work and it’s rewards, whether monetary or voluntary.

How do you teach your children to handle money in your home?

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  1. What an awesome post. I’m a huge fan of Dave Ramsey and I’ve always loved his stance on allowances/commission. Thanks for the reminder!
    Heather´s latest post: Try- Try Again- My Second Attempt at Homemade Dishwasher Powder

    • Thanks, Heather! I’m a huge Dave Ramsey fan too; he changed my life actually! It’s knowledge I learned a bit too late in life..hoping to “change our family tree” based on his financial wisdom.

  2. My kids are now 7, 10 and 12. We have followed a similar system as you suggested. The kids have certain daily chores and aren’t paid for them. Then they can earn additional money around the house if they want to. This has worked quite well for us.

    About three years ago when my two older kids were washing our car for additional cash, a neighbor asked if they would wash his (for pay). Then another neighbor asked. One thing led to another and my boys ended up starting a neighborhood services business (a kid-sized one of course.) Working for others has taught them even more about handling money and responsibility. It hasn’t always been easy (like when they need to snow shovel someone’s driveway before school) but overall they are very proud of their business. When they receive a payment, they put 25% in a SAVE envelope, 10% in a GIVE envelope, and the rest in a SPEND envelope. This has helped with math skills as well!
    Suzita @ playfightrepeat.com´s latest post: Spanish Immersion in Costa Rica- Unexpected Highpoints for My Kids

    • Wow, what little entrepreneurs! Learning the value of a hard work and improving math skills at the same time…that would make any mom proud! 🙂

  3. We began giving our 9 yr. old her allowance when she was 2. We use the charity (10%) – save (45%) – spend (45%) concept.
    Her allowance is not tied to chores of any kind. We believe that we all have chores because we live in the same house and we all have money because we live in the same house.
    So far, it’s worked out well and she’s always willing to help out with chores that are not on her list!

  4. Thanks for posting as it IS so important! My husband and I spent our first 8 years of our marriage mismanaging our money – a legacy we don’t want to pass to our kids. Our 5 year olddoes chores and he does get paid for them – he puts 10% towards tithing, 10% to saving and the rest for spending. This past week he chose to put his 80% into his savings as well – way ahead of his parents!

    • Thanks, Amy. I agree and my husband and I were in the same boat. We got married very young (22 & 23) so we had to do a lot of growing up together. Although we both made good incomes, there was nothing to show for it. It was a tough road out, but being on a budget together has made our marriage so much stronger. Like you, we want to teach our two kids these lessons early in life, so they don’t make the same mistakes we did.

      How incredible that your son put 80% into savings…on his own. THAT is incredible!

  5. I really think the best way to begin teaching small kids is to use cash – yourself.

    When you use a card, all kids see is you give a card to the cashier or swipe it, and you get the card right back. No visible, tangible “exchange” occurs. Money appears unlimited. You can tell them it isn’t, but it can be a bit of a hard sell.

    My kids help me put our cash in our envelopes (and they know where it came from). They understand that when the money is gone it’s gone. No “can we buy this?” – “but i want that” battles at the store.

    I really think you have to model restraint, delay of gratification, budgeting, opportunity costs, limits, etc. for your children. And with small kids the modeling needs to be as tangible and visible as possible…very difficult with “magical” cards you get to keep.

    • Rosie, that is such a great point about only using cash. I’ve never really thought about it from the eyes of a child, but I imagine to them, a new toy or an extra snack at the grocery store is as easy as a swipe of a card. You’ve inspired me to be better about the “cash envelopes” which I admit is a struggle. Not only should I do it for our budget’s benefit, but for my kids as well. Thank you!

  6. Christen,

    I like your approach. I really like the “extra service day” idea – wonderful way to introduce kids to philanthropy.


  7. If kids get an allowance, have them count it out from the coin jar – you’ll be getting money sense and number sense all at once! At first they may count all pennies but then they will see how other coins fit in- teaching counting by fives and tens and grappling with fractions of quarters, halves, tenths – and even how to add them together.

  8. I love Rosie’s idea of getting them involved with your own money management. My husband and I are just now turning to the envelope system and I know our preschooler would love to jump in and help us!
    Carla´s latest post: 2011- The Year of Consciously Creating My Legacy

  9. Thank you for this post! My husband and I have been struggling with my 10 year old daughter’s money sense. Our money habits are much different than what she sees at her father’s house. She expects us to pay for everything, while she saves all of the money she gets as gifts. We have yet to implement an allowance system, but I really like the idea of the commission. I grew up on a farm and while I received a weekly allowance, I think that the commission plan would have made my work load seem more reasonable and possibly more enjoyable haha. I am looking forward to starting this and will also be starting our 3 year old on regular tasks as well.

    I do have a question about how much children should know about their parents finances. My daughter is constantly asking how much something costs and also associates high price with better quality. I find this very frustrating as I was not raised this way. At 30 years of age, I still have no idea where my parents are financially. What would be a proper way to explain to my daughter that while we are not poor, we can’t (and won’t) give in to every whim she wants? I am a little hesitant about revealing actual numbers because I know that she reports many things to her dad and I feel that our personal financial info is not something he needs to know. Would generalizations be effective enough?

    • I do think generalizations would be enough. I don’t think children need to know all of our financial details as you never know when those details might be leaked to others. 🙂 (My four-year old has the purest intentions, but there have been times when personal things we’ve said in passing have been re-stated out of context to others!) I think as long as they see you budgeting your money wisely and you are actively encouraging them to budget their commissions as well, you are making a huge impression. Personally, I would hold off disclosing too much financial information until they are mature enough to handle it, if ever. I wouldn’t want to give them any reason to worry or perhaps rights to brag, depending upon your financial situation. They will have plenty of time to worry about their own money in due time! 🙂 It is a great question though and greatly appreciate your thoughts!

  10. We just started a nickel chore chart with our 3 and 5 year olds. I made a little picture frame magnet board like this one http://deliacreates.blogspot.com/2010/08/nickel-chore-system.html
    and they have 5 chores. It’s been wonderful. Of the 5, 4 make my life easier. They can choose to do the chore and get paid, or I’ll do it and they don’t get paid. No more argument. The last one is a special 10 cent chore that I offer, like help me with the laundry or sweep the downstairs.
    The first week they went right out and spent their money on books at the used book store. A few days later my 3 year old said “SOMEONE TOOK MY MONEY!” I reminded her that she spent it and after the tears dried up she told me next time I’m going to save it! We’ll see but great lesson to start off with.

    • Your chart is absolutely fabulous!! Practical and simple, yet design savvy…I love it!

      What a great “savings” lesson your little one is learning so early in life. How many times had I “forgotten” the money I’d spent on a useless jaunt to Target? It’s a lesson I wish I could have learned much earlier in life…thank you for that precious insight.


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